The Effects of Higher Bank Capital Requirements on Credit in Peru

By Xiangming Fang, David Jutrsa, Maria Soledad Martinez Peria, Andrea F Presbitero, Lev Ratnovski, Felix J Vardy

September 28, 2018

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Xiangming Fang, David Jutrsa, Maria Soledad Martinez Peria, Andrea F Presbitero, Lev Ratnovski, and Felix J Vardy. The Effects of Higher Bank Capital Requirements on Credit in Peru, (USA: International Monetary Fund, 2018) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper offers novel evidence on the impact of raising bank capital requirements in the context of an emerging market: Peru. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements have a short-lived, negative impact on bank credit in Peru, although this effect becomes statistically insignificant in about half a year. This finding is robust to estimating different specifications to address concerns about the exogeneity of capital requirements. The fact that the reform was gradual and pre-announced and that banks were highly profitable at the time could explain the short-lived effects on credit.

Subject: Bank credit, Banking, Capital adequacy requirements, Countercyclical capital buffers, Credit, Financial institutions, Financial regulation and supervision, Loans, Money

Keywords: Bank credit, Bank regulation, Buffer requirement, Capital adequacy requirements, Capital buffer, Capital financing, Capital reform, Capital requirement, Capital requirements, Conservation plan, Countercyclical capital buffers, Credit, Credit growth, Europe, Global, Loan growth, Loans, Requirement increase, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/222
Stock No:

WPIEA2018222
ISBN:

9781484378366
ISSN:

1018-5941

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